a for a public company with private shareholders and executive system extracts a lot of that subsidy for themselves, that is not a very good way of subsidizing homeownership. i think we have seen that, the end of that movie in 2008. members of the house ways & means committee heard from the british secretary of state from work and pensions today about tax credits and welfare programs. ian smith said like the u.s. the welfare system in the u.k. is growing and he outlined ways the government works to keep recipients from becoming dependent on the system. this is two hours. >> good morning everybody. welcome to today's joint review

of how welfare and tax benefits can discourage work and before we begin with a regular session today with opening statements i would like to recognize a very special guest who is in washington d.c.. the right honorable e. and duncan smith, secretary of state for work and pensions for the united kingdom. we are truly appreciative he has been able to adjust his schedule to join us today for a few minutes. the united kingdom is currently undertaking significant reforms to its welfare and tax benefit programs to streamline their administration and reduce marginal tax rates so that work always pays. this is an issue that i have cared about for many years and we have been watching closely many of the developments in great written as these reforms have been undertaken in what appears to be a bipartisan manner. he has graciously agreed to share with information about the recent reforms. in the u.k. which will be the effect is as if our program. mr. secretary we did a little digging through our archives and

with the help of the experts in the congressional resource service we were not able to find another example of of the sitting foreign secretary appearing before the ways & means committee on nontrade matter so this is actually a historic asian. we are honored to have you join us today and please proceed with your statement. >> mr. chairman thank you very much. it's a pleasure to be here. it's also satisfying in the surroundings. i'm used to doing my answering's across the dispatch box in the house of commons being screamed and shouted at by most of the other side within arms reach so i am anticipating that not happen here but if it does i will be able to handle it. what we are trying to do is much the same as anywhere else is trying to figure out what has been going on with a system that has set out to actually try and help people to become independent that traps them in former dependency. we saw spending on welfare rise

by 39 or 40% under the last government at a time prior to the recession, so during a period of growth, the economy was growing but we were seeing welfare grow which does seem to be rather peculiar. and what we saw here was a growing level of people who just didn't work. at very large number regardless of what the economy was growing or not, were out of the environment of work and that to my mind causes problems and problems that we should recognize. it's not enough just to take people off of benefits. the question you have is where did those costs then go if they don't disappear? by that i mean for example you don't pay people benefits, you end up with the kind of creative underclass and that underclass then becomes very expensive than other ways in policing. we saw our policing bill rise by over 50% in the course of the last government.

most of your serious health concerns exists among the same underclass. they are the biggest drawer on health care and they are also the biggest, most likely group to be almost recording every kind of sickness you can possibly imagine. it's deeply disrupted by people from that underclass who themselves have no expectation or anticipation. notwithstanding the costs and taxation therefore is huge to all of us so handling in changing this is not just about reducing the welfare although it's critical. it's also about reducing the costs that come as a result of having a group like this. what we have chosen to do is to look at first of all one, the entrapment that is to say the welfare system you set up. what we believe is the system we have inherited is so complex with so many different benefits, all being withdrawn from people as they going to work at

different rates. some are 100% in summer 60% of summer 70% and they go up in hours. some are gross and some are net. it's almost impossible for the benefits to understand or calculate exact way how much they would have in their pocket after their withdrawal and in some cases they are using sometimes up to 95, 96 so that means basically they get four or 5p out of every pound they were per extra hour. not much is incentive. they assumed usually they are worse off and not worth the effort so they don't make the effort. the system itself doesn't incentivize people to do the right thing. it actually does the other and we will see most of the money transferred onto people in work which was intended but mostly to people out of work particularly large families living in larger houses, often not to couple families particularly so he

shifted money made it worse because you see more money. that merges all the back to work in the fits into one benefit, and it takes them away at one single rate at every hours of every hour you work you will come up with an rk 65%. that can be adjusted according to the government and they make that decision by withdrawing money. that simplifies your understanding. universal credit is critical in two regards. the marginal reduction rate and this single flat -- and the other which is the participation tax rate, that is the moment you enter work. to my mind that is the critical case. you need to get them across the threshold number one. after that, keeping them in work and i will come back to that come as critical as well but get them across an keep that very low indeed. going across as very easy so that decision economically make

sense. universal credit is based locally about that simplification and making work. always pays to be in work and not on benefits so you are better off to be in work and not on benefits. secondly we have derisking government but making sure that it does what we needed to do so we have the private and voluntary sector those who have been difficult to get into work. i don't care what they do. it's not my problem. i simply pay them only after they have gotten somebody to work so it's a payment by results system and there we actually pay them six months after somebody has been in work, so they don't receive their money until six months and we need to keep them in work which is really critical. easy to get someone in work and difficult to hold them in work. we told them in work because only then do we get what i call the work happened. once they have the work habit they will make sure they understand work. six months, nine months, a year even after 18 months in the case of most common, in other words

the rewards are further down the chain for them which means they have to work even if they have gotten -- basically they only get paid after they do the job, not before, and we calculate that by how much money we save in benefits and therefore how much money we can pay them. it's a straight crossover in money. the third area of our reformers as important as looking at sickness benefits and disability. we had a massive problem with the huge number of people who were trapped really on to benefits particularly a sickness benefit called incapacity benefit. there of course you are on it you are an eligible for work and we had some people and these not seen by anybody for up to 10 years and of course if you want a benefit like that you're not working. it doesn't take the brain of an incredibly intelligent individual to understand if you had a problem you certainly have a big problem 10 years later so you get worse, not that her. what we have now done is we are reviewing those moving onto new benefit or moving them back to work and the assessment is

around about 10 or 11 cases -- 10 or 11,000 a week. we are finding something in the order of over one third of those are assessing they are not fit for work and going straight back to work. just a bit more than that are going to the middle benefit which is you will be able to get to work that you have problems. the expectation is you will be available for work in the third group roughly about the same as a group that actually you are not expected to work because you are too sick and then of course we will keep assessing people once they are on the other benefit every year to make sure that they are getting better and now we can move them back to work. whereas before we never had a constant check on them and the other one is a disability benefit which is about your mobility and your care mostly through judicial review. of course we are the judges who have sat on the appeals and

widened the caseload really so we are tying that backup to make sure the benefit goes to those who really need the money and that is not work related. in other words you can receive at and around work to make sure that they get back to work and the most disabled are able to work which is all -- after all what they want. there are a lot of other things but those are the main things. >> in the very near future addressing processes and quite a bit is done for me, it's ironic happen to you. i went to the british -- 30 years ago and the u.s. army paratrooper in exchange. one of the more interesting aspects was having to jump out of an old garage platoon to find out if the parrot -- parachute worked. we are glad to watch you take

the first jump so that we can learn from some of these reforms. as we face these challenges on employment rates in both our countries are elevated, fewer people are working or looking for work and there is an increasing family breakdown and leads to social problems and financial costs. you alluded to that you are dealing with if in your own jurisdiction and given these factors is critical we develop approaches to integrate our processes more effectively. it's an issue i've cared about having grown up in a single-parent home and was on a form of assistance as a child as well, not meeting my father in telehave been in the army for seven years. i'm very interested in how you bring people are avoiding this cliff of falling off when they want to go back to work and they find disincentives. i was wondering if you could elaborate for us on how your reforms address each of several issues on employment and work, family breakdown, and the need for budgetary discipline from a

governmental perspective in terms of handling this and i also understand we play a key role in these reforms and i was wondering if you could comment briefly on how the wage and other data are being used to design and operate this new system? [inaudible] [inaudible] >> it's not relative income that is the key. it's what leads you to the position of being unable to -- is a household and those are the things, drug and not all of these in your depends on the state so those areas need to be wounded to any kind of assessment because your lifestyle usually has a bearing on what is likely to happen to you and here's the point about family breakdown. we need to do a lot more in it dance about this factional

family night which exist in many of these areas a early intervention has got to be the key to this with particularly young dysfunctional moms early on and secondly took it families on the edge of breakdown so investing money into help and support from the voluntary sector etc. to help stabilize families before they break down rather than spend the huge sums we do picking up the pieces afterwards. is estimated 20 plus million pounds a year we spend on the aftereffects of a break down where is if you put a bit of money into this you can re-stabilize families often on the edge. that is a huge shift to where you put your money to focus on breakdown rather than dealing with the aftereffects of it. on the issue about how the system works in terms of employment, the reality we have here is that right now we know what the stacking levels are for benefits, so what we are simply saying is that as people go in,

from benefit into work that the levels they achieved in work for each hour should mean that their income is higher through that work process and demonstrably higher than it is when they are on benefits of the universal credit, it's interesting because by and large and shift some of the money down to the bottom and. that is to say the early hours because we think that going into work is the biggest issue and then moving up the hours is the second issue. your marginal reduction rates of the participation tax rate, you need to get that right now so they are always on an upward curve in income and that starts literally at our number one. that will hugely benefit for example -- who we want to go to work because we think it's good for them and their children after a certain point, quite rightly that their children realize work is part of life and part of the future and they see somebody from that household

working. if it's a one parent house will it has to be them and nafissatou parent house cold someone else. that needs to pay and to keep the work, that's important so that is how the economics of this work which is at they get paid the roles are lower and you do that by what i call this regard. as the interwork each category of person will have an amount of their income disregarded before the taper so they can earn so much, very disabled person will have a bigger disregard than the taper and someone who is able-bodied and young will have a small disregard for the taper and then the taper. the taper is the same for everybody. disregard, evaluates what your particular -- needed to make that and come work for you and that is where most of the money is therefore concentrated, on the investment. this will allow us later on to look at the work conditionality.

>> thank you very much mr. secretary. i would like to recognize my friend in the ranking member in the resources subcommittee, mr. -- >> as i understand it is universal credit is a new approach that you are just beginning to pilot or implement. >> that is correct. we are starting, we are due to start that and -- it goes life in october next year. we are building a new system and everything else and we are doing some early advance work on it starting around april of next year in key areas. running it out early in some key areas. >> is the goal though once you resolve any of those to have uniformity across the country, so you would have a different policy in wales from greater london or in greater london from northern ireland? being not in terms of the basic structure of this, no.

but how it is delivered later on, could be a very localized delivery. right now we are doing a national delivery and we are open to discussion about whether that can be -- to much more local level. the key to this benefit by the ways we also have to change the way we report on taxation so alongside this big change to create what is called the real-time installation system on our tax base. now what happens is because as someone goes to work under the present system, the tax authorities assume that they earn so much money because that is their prediction. we known part-time work but that is change so it's not the same. you are expected as an individual to report your hours change back to the authority so they can readjust your support to the tax credit. the problem is, you are coming from a group that doesn't like authority very much and doesn't understand it and gets confused. you forget to do this.

some might deliberately not do it and others forget so they go on to pay you too much money over the year. at the end of the year they turn around and say oh we have overpaid and now we need to get that money back but if you are dealing with a group that spends every penny he gets immediately. with the real-time information system will do with universal credit, every month we reconcile so if your hours change, you don't even need to tell us because the business reports that in there and media report and then it just automatically so now we say hold on, his hours were down last month. wheel of adjust the payments. >> are your projections that overall this will cost more to your national treasury to have this universal credit or less? >> we are investing money to get it in but once it's in we will more than save that money back because of two key features. the first to is the point i was making. huge levels of fraud, huge levels of error that are costing billions. >> how much more are you investing over the short-term?

>> over the three or four year period we are averaging 2 billion a year in investment as i say once that is vetted and, after that that is when you start. you will be making returns immediately because we think it will more than offset it even as you or are bring in it and threw the savings we make through the error and fraud alone that exists in the present system. >> one of the obstacles we found in this country to people moving freely from one job to another or moving from a job to setting up a small business is the lack of access to health insurance. is it your feeling that access to health insurance in the u.k. is helpful in promoting employment? >> our system of course is fundamentally different from what you have. we have the national health service and therefore everybody gets access at the point of delivery. speier don't have any dairy or to employment from people being

locked into an insurance policy at one job and fear of losing it if they move to another? >> people do have private insurance but i don't think it's anything like the part it would play here because of that level of basic health care that they get. i'm not by the way entering the argument of whether you should have anything similar here. >> what we have and what has been adopted here is very dissimilar but it does reduce that job loss and of course when we were considering it, one of your european parliamentarians was on "fox news" telling us what a horrible system that was over there and he was repudiated by prime minister cameron and referred to your health services great national institution. is it still a great national institution in the u.k.? >> yes but it's being reformed in the moment. there's a big change taking place. we just put reforms through to make it much more responsive to a people made in make sure the money being spent is focused so overall we spend less money on health care. >> with the concept of reform, but not with repealed so that we have access to health insurance

for our workers. thank you for your testimony. >> ike thank the gentleman and the chair now recognizes dr. boustany from louisiana's new chairman of the oversight subcommittee. >> thank you chairman davis. it's great to see you here today and we appreciate the tremendous work you all are doing to reform this complex system in the u.k.. to really two really outlined the incentive to make sure that work actually pays and those who are receiving the benefits will understand that moving, crossing that threshold to get work is where they need to go and of course how do you keep that employment? i want to focus on a slightly different part and what you are doing with reforms and it's called the work program. it's a system of delivering employment services to these individuals. as you restructure the benefits and the structure of the welfare

benefits and tax benefits you are also looking at your delivery system benefits and my understanding is you have ways to leverage nonprofit organizations, certain private organizations not only to help the individuals get into the workforce but to stay in the workforce. can you elaborate on this program? >> we describe the work program, which i think is unusual were two reasons. the first is it's a payment so the risk is not taken by the taxpayer. the risk is taken by the private sector who actually run the program so we don't pay them until they have got somebody to work and have kept them there for a minimum of six months and then after that they get further payments. the second about this really is that we also call it a black box system. by that i mean simply it's not my job to tell them what they should do. instead you you'll have to

figure that out. this is where the voting sector comes in. there are 18 in different areas and they will have underneath and to -- different subcontracts subcontracts -- subcontractors. they can be the organizers to deal with systemic problems in individual has. for example somebody and we know this by knowing what prisoners are and if you get somebody in front of you like that, they simply won't stay in work because they will fall out at some point because they are in capable of doing the jobs and they can't redesign so what they will have to do is back load them quickly to some organization, probably a voluntary enough to get them to the point where they can actually hold the job down and then they take them through to work. they have to invest a bit before they get them into work in to work and that is how it works. for the easy ones that just need to be attached and sorted, they

will go through quickly but it is these more difficult and by the way they get rewarded on the level, and that is how it works of the risk is taken by the private company who is the prime. the voluntary sector get paid at or slightly lower level but nonetheless it worked for them in terms of the total report. >> this is it a departure from past practice is. >> it's huge. i think it's a biggest anywhere in the world that i can be aware of where we are doing a payment by results program. it's now national and we are quite in -- not quite into the first year. is a two-year program and we have targets. if one of the primes fails and doesn't receive -- achieve the results we will simply get rid of them and somebody is will come in. we keep the risk away from the taxpayer, very much on the provider and it turned it is in their interest not just to get it to work but i also mentioned holding them at work and that is the biggest initiative by government agencies. you turn massively after seven

or eight weeks because if they are not right for work than they will not stay in work and there for what happens is they churn out. it's very expensive than because you are chasing them after that and then they are less likely to go back to work later again. when you get them once, you have to make it tell one so the provider has to check on the individual at work constantly to see if they have any problems and deal with them and then hold them and talk the employer to hold them in that job. >> thank you very much and hopefully we will continue to learn from the experience you have there in the u.k.. i yield back mr. chairman. >> thank you. the chair now recognizes mr. neal from massachusetts. >> thank you is your chairman. mr. secretary just to follow up. one of the reasons that data suggests the welfare reform act of 96 here work was in some measure because we added a

number of mitigating issues to the overall package, including job training, childcare and not to miss the point people wanting to keep their health insurance. that had a profound impact on that flexibility. i'm not going to trespass in to the domestic politics of the u.k. but i think that just having observed 3000 miles away the prime minister during his election cycle, he actually suggested a much more radical transformation of the health care system in the u.k. that he was actually able to deliver on and i understand that because that is just the reality of what happens but i think in follow up to what mr. doggett pointed out, thing to prime minister probably discovered that the health care system in the u.k. was pretty popular. is that a fair statement? >> you have to understand from

the standpoint of the u.k. that in this area is quite different from where you are here. there is no question the health service because of its basic rentable, which is that no matter what your means, you will always be able to get treatment at the point you need it without any request or requirement for money. and that is a big change so that is ingrained in people's psyche. is a very emotional point to lots of people so they are very wary if you play without because they don't want to see that shifted so they would have to start over. on your point about, we are a coalition. i am in a coalition which is not wholly conservative so we sometimes have to cut our cloth according to what we can do in parliamentary terms. but the reforms by and large we have gotten through will make a big difference to recent drinkware that decision-making should lie and much more would be with those who are responsible for the treatment and also knowing how much the

treatment costs in bearing down and understanding of how that is spent. >> a good point. one of the problems we ran into in 96 was the suggestion i think that was fairly accurate, that for many people who were receiving public benefits, a state with health care. through the medicaid system. the problem in some measure was to people conceivably living next door to each other, when he went to work every day and did not have health care benefits came to resent the person who is receiving the public benefit and keeping the health care benefit. so those mitigating circumstances that i referenced earlier about health care in your instance seeks more room or flexibility. >> it possibly does. the only, and i would on that is we all as politicians make the argument that i don't know where i'm going but i know i wouldn't start from here is always her

biggest.so dealing with rory are we don't always have that issue about health treatment in the two houses next door to us that we do have issues around welfare and that resentment in welfare is the big issue right now the u.k.. someone going to work on lower marginal income looks at the house next door with the curtains closed and realizes they are earning pretty much what they are earning what they are not working. they have a larger family or they are living in a larger house so that resentment does exist. it tends to exist for us in the welfare system and a lot of people and work are now deeply resentful of those who are not in work so this is where our cultural shift is rather than health care. >> lastly this morning a belfast mark mcguinness who is an old friend of mine and the queen shook hands. a lot of people who participate over 35 years and albeit it will never happen in momus witness these choose changes but as you noted in an earlier conversation

we had there were still stubborn elements, smaller number year after year, who still are rejectionists, but as one who is very knowledgeable about the falls rd. in belfast, the link between poverty and high rates of unemployment and violence, it was the best, one of the best recruiting tools for the hardest men and women in those neighborhoods, to organizations whose thought -- sought destiny and never finding a common moment. >> my comment would be this really. first of all i was in the scotchgard years ago. i serve so i have first-hand memories of some of the violence. i lost friends would who'd beend and service. no one is happier than i am to see the possibility of peace in northern ireland. it's been a dreadful thing in

the united kingdom for far too long. .. >> i would like to thank all of

my colleagues for their unanimous dissent and altering our normal agenda with opening statements until after to accommodate the secretaries time. i would like to proceed with opening statements and now i will begin. today's joint hearing his sentence and disincentives towards working into tax credit programs. as if are deterred from iain duncan smith's, secretary of state, other countries are working at the same issues. secretary duncan smith's presentation as well as testimony of witnesses of this we make changes on the side of the atlantic as well. two weeks ago when president obama spoke in cleveland, ohio detect what his vision for how we provide letters of opportunity for folks who work at and middle-class. today we will consider whether the most suitable for programs in tax programs could act as ladders of opportunity or miss important events by higher earnings for families. to explain this complicated

topic, whatever witnesses, dr. thies describes the dates in which it emily to $30,000 a year as pederast or family than a family not working at all but saw benefits and tax credits are taken into account. other experts like economists greg need to visit the poverty trap. the bottom line is if you're poor the government is anything but me assure you of little dissent is to improve your condition. would government benefits low-income families and their work in earnings increase, that discourages more work in earnings. the more benefit the government provides, ironically many programs question child care and human resource jurisdiction are designed to alleviate poverty while promoting work. however, when combined with refundable tax credits have grown rapidly in recent years the collective weight of these programs have an unintended side effect of discouraging harder work and higher earnings.

this is not a new problem, but it's like to get a lot worse. the new health-insurance subsidies and without care reform will expand the problem and extensible instant middle-class, affecting families up to $90,000 for a family of four. a national policy in exchange sipc will yield marginal tax rates over a broad range of lower middle income so it's about 50% can be usually about% and sometimes about 70%. those are staggering numbers. for some people of the martial tax rate can exceed 100%. that means the family is worse off when der work in earnings increase. here's how another harvard economist, jeff lehman adviser to president obama describes one women who buy from $25,000 s-sierra to $3,035,000 a year could not make ends meet. she lost free health insurance in a debate $230 a month her employer provided health insurance.

her rant with her section eight voucher when it are 30%% because of income gain. she lasted $280 a month in since i started care vouchers she had for afterschool care for her child and my $1600 a year of the ea tc and pay payroll tax on the addition time at your income. she was $300 a month of additional gas and parking churches. she has to she could go back to earning $25,000. the government opposed the 130% implicit marginal tax rate on here. with that for the witness' testimony including solutions to americans have more, not less than a minute to work and support families. this is it an issue i wrestled with for many years as a volunteer for coming to congress find a way to build a bridge that smooth the transition to work without creating a cliff i'm not particularly for single parent families trying to make a go of it and improve the quality

of lives. but that's a stride over to the ranking member of the human resources to committee, representative floyd doggett. >> yes, mr. chairman for your courtesy. certainly, if we can affect the tax system so it does more to reward work, we should do it. if we can figure out any abuse of existing preferences or tax credit that are not being properly used in accordance with the outcome we should do that in tinkering steps. i must say respect way that it is my belief that the focus of this hearing and the focus of the overall work this year and last year at the ways and means committee in this area is misdirected. let's look at the facts. the richest one fifth of americans are reported 84% of the wealth of this country, with the bottom 40% are estimated to on about 3% or 4% of the wealth

of this country. the congressional budget office reports over the last three decades after tax income for the top 1% soared to 277%. while two thirds of the income gains from 2002 until 2007 float to the top 1% of households, the focus at this hearing is not on the 1500 millionaires to pay zero and can tax any recent year. it is not on those corporations who not only paid zero comments such as in some years general lack take, but wayne, wells fargo and 10 cases actually received money backing credits from the government. it is not an area where revenues are not slowing to a government. it is not on those at the top. it is all on those who have an ownership interest in 3% or less of our nation's wealth, whether

they are getting too much. the overall concept of this hearing seems to follow closely the report last year the house republican study committee concerning the disincentives of our current system. this is the same group in same set of reports that condemned as welfare and seemed to call for a reduction -- condemned as welfare, public grants, title i grants to disadvantaged schools, had starred, school lunch program and the school for this program. i believe that it's a mischaracterization of those important initiatives that help those who are struggling to become part of the middle-class and to share in the american dream and help them advance, that it is wrong to continue to tinnitus opportunities. when a mother with a couple children who lived in oz in the same markets or san antonio

leads the welfare program for a full-time minimum-wage job, the earned income tax credit and the child tax credit are available to help her and other working families that increases the value of her work in a significant way and is an incentive to advance. at the same period of time through the recent recession, there were reports by the pew research center that hispanics particularly represented the hardest hit by the recession. a 66% drop in wealth from 2005 to 2009. a widening of the gap in our country that has not been seen in the last quarter of a century, during the time that data was collect it. these are serious problems that need to be addressed to encourage and help people move into the middle-class and to see that i nation has the revenues that a year in order to sustain

those programs. we need more focus on those real problems rather than on the small issue that is raised by today's hearing and i yield back. >> i think the chime in the chime in and out china gentleman in and means subcommittee, mr. pat tiberi. >> thank you, mr. davis. it's a pleasure to have a joint hearing with their set committees today. providing adequate safety net for americans who have fallen on hard times, i believe, is a nonpartisan issue in this congress. it is something all of us believe in. as is making government -- making sure government does not stay in the way of americans who want to work to achieve a better life and fulfill their american dream. i know firsthand the need for a safety net. when i was in high school, my

father who emigrated to america with my mother, with nothing, lost his job with 25 years, lost his pension and our family lost her health care. at that time i was thrown into the free and reduced lunch program in high school. good news is my dad found a job, was rewarded and we went on being a family again. today was dangerous with their tax code is that it appears that people -- with the tax cut is saying to americans down on their luck, who had a job was, and that they'll be penalized if they turn their luck around and are fortunate to find an opportunity of work. comprehensive tax reform is a chance to solve this problem and tax reforms to ensure that loans from americans are not punished are extraordinarily high implicit marginal rate.

we should reduce complexity as well. there is no reason i thought there should have to see a tax accountant for his tax returns. our current code is a new sense, where taxpayers, for instance, claiming he earned in contacts credit him many times in many places have to use a paid tax preparer, costing them money from their own pockets. i look forward, mr. chairman, discussing how we can fix the issue to empower americans to live the american dream and i yield back. >> thank you very much. the chair recognizes mr. neal, member of the ranking committee. >> thank you, mr. chairman. thanks to you and mr. tiberi for holding a hearing. i want to quote ronald reagan. the earned income tax credit is the best antipoverty program, the best job creation matter to come out of congress.

the earned income tax credit is a bipartisan idea signed into law by president ford with a democratic congress expanded by every president since were, both democrats and per plug-in. here's an opportunity where we might frequently hear that 47% of the american people don't pay taxes. of course they do. they pay the most onerous taxes, payroll taxes. could be seen easily do stuff and some harsh rhetoric that is simply knowledge that. president reagan is absolutely right. the name contacts credit is extremely successful in increasing work on lowering welfare receipt, and making tax were fair for low and moderate income families and most importantly reducing poverty. in 2010 the earned income tax credit lifted 6.3 million americans out of poverty. almost 3.3 million children. without the earned income tax

credit the number of children in poverty would've been one quarter higher. it's it perfect? of course it's not. no provision in our tax code is perfect and i'm open to working with republican friends and colleagues to strengthen the credit. i do get a bit antsy with recent comments that i've heard from some who would suggest or imply we should increase taxes on low and moderate income families. majority leader cantor recently stated, quote, we also know over 45% of the people in the country don't pay income taxes at all but we have to question whether that's fair. again, an opportunity to shape language. majority leader cantor offered different definitions of the word fair. some increase taxes on the poor in income american at the same time call for taxes on the wealthy. that's hardly fair. republicans tell us who can increase taxes on the wealthy because of the negative impact on jobs come but ironically they

like income taxes on poor people because they say will encourage them to work. we've come a long way since those days and president reagan proudly proclaims the setting of the tax reform act of 86 to quote millions of the working poor will be dropped from the tax rolls altogether in the wealthy will pay their fair share. that is ronald reagan's coat. as i conclude, i'm open to working on this legislation and i hope a one-year enhanced with attempting to welfare the child tax credit would make their way towards the end of the year and i hope members of the set committee in full committee can find a common path forward on these issues. he'll back. >> i thank the gentleman and will now turn to depend on which representative moore will be working -- affecting affordable housing committee on the child homelessness and domestic abuse.

i would without objection will be written testimony will be made part of the record. please proceed with your testimony. >> thank you so much, chairman davis and ranking member neil and doggett, it's a pleasure to be here. init maxtor. as many of you may know, at my first child at age 18. she is now 42 years old and talks back very regularly. times square not always easy. the very first welfare i received this when i gave birth to my daughter. i can tell you that if in fact welfare reform would lead to to

its promises and rhetoric of making work pay, helping to lift people out of poverty to give people a hand up instead of a handout, i can guarantee you that the 4 million people who are not receiving tariff would storm the capital and demand welfare reform. but of course that is more etoric than it is reality. i was able to listen to some of the testimony of our distinguished duncan smith testimony. he must appreciate the fact that britain is a country that would probably believe social mobility among the oecd states, which means that you could predict people's social mobility and

more by what their fathers station, whether they are in duke, perl, what their income was then you can with anything that welfare would have done. and i say that with all due respect, mr. chairman and i mean it with all due respect, that the title of this hearing how welfare and tax benefits can discourage were is that that's a misnomer at worst a non-sacré coeur. i heard the testimony and it's a lot about the lack of character in the part of welfare recipient and it doesn't talk it all about the structural intent of these welfare programs. i went to quote, since to see my time is expiring against my will here, i'd like to just quote

from charles dickens. i think that is appropriate given our first panel, spark notes quote on dickens. the team of david copperfield focuses on orphans, women and the mentally disabled to show that exploitation, not pity or compassion is the relevant name astro society. so when we look at the tax benefit, the marginal tax rates that people experience, just because their benefits are not high enough to make her pay, i would submit to know it forged period. i submit people were not just for their self-esteem or dignity. they need to make enough money to go to pay the rent in at a barbie doll under the christmas to you at christmas. in my case and i'm happy to share details of you is that my daughter had her first asthma

attack at age four days old. i could not afford to have a job that would've separated me from the medicaid benefit that we had. i once had a job and make my supervisor not to give me a 50 cents hour raced with a loose title 20 daycare. i worked 80 miles away from my children and is a person who survived childhood rate, i knew how important it was to have reliable daycare. if we really want to encourage her, things like and income tax credit, things like providing food supplements encourage work are not to simply take the position that will take the keynesian approach and just say, well, the thing to do is to the stands, franchising benefits to literally deliver this poor group of people, primarily women

into the workforce to in fact not have any other choice. with that i'd be happy to answer questions, mr. chairman. >> to any members have a question quiet >> thank you very much for your expert testimony, ms. moore. to think americans out there looking for work are most focused on the issues of child care, job training, job availability and they aren't calculated their potential marginal tax rate if they work a certain number of hours? >> no, sir, i can tell you they are not. i want to stipulate, mr. doggett to welfare recipients are not. they have common sense even though they have the ability to calculate implicit tax marginal

rate. i can tell you that it's common sense like what i learned as -- with a four -day-old child. i would've been pretty successful as a way just because i love people, let's engage in them, but i would not have been able to afford as a four -day-old parent go work in a restaurant that didn't provide health care and risk at that time losing medicaid. i couldn't afford to lose medicaid. my daughter is 42 now and still has asthma. it is a benefit. if the government wants to was people if in fact i didn't risk losing medicaid. just like i baked my employer, you know, i calculated my daycare provider told me that

earning $17,000 a year with three kids that i had in fact had to have marginal tax rate. i'm still poor that when the -- said that when january came around and the automatic increases in title 20 occurred, inflationary reason could take a 50 cents an hour raise. i went to stipulate the fact that there are implicit marginal tax rates that people had. then the conclusion has been gaining new system where you take the benefit a way. but it means is the cost of daycare, a thousand dollars a

month, $15,000 a month depending on the age if your child is so great that work does not pay. women cannot afford to work without governmental assistance. >> thank you. >> one thing i would like to point out. the purpose of the year and is in fact to ask the questions. he begged not to get a raise. >> i am reclaiming my time. i would like to make a point that what we're trying to address his broken processes that work on a bipartisan process of the course of this congress to address this very clear. i think what i'm hearing from your commentary is agreed with the premise of our hearing to look a best practices, ways to integrate information of white people in to the very situation you yourself were in as a young mother appeared that i would like to recognize mr. neel.

>> can i respond to that because i was snatcher time. i think i was someone else's time, so you reclaim someone else's time. >> actually that was my time, ms. moore. >> thank you. i think you had some very important points. job training, health care, transportation, daycare. the other grain that we had in 96 that was really very far-reaching and all encompassing and maybe you can speak to it because you invited the question when he said she wanted to be as candid as possible. what about the role of child support? we've done a good job trying to force child support. maybe give a practical assessment of that. >> thank you for asking that because i'm a huge fan of child support. as a matter of fact for some really feel that bipartisan amendment is passed out disney and mr. liana to try to 100%

pass through child support to custodial parent. i am a huge fan of child support, particularly since all of the other sources of support are wanting. it's not a reliable source event come. no longer a mandatory expenditure. i think child support is very important. what to respond to something charming davis said with my tacit agreement about hating these marginal tax rates. i come to a different group lucian about it. you knowcome inside his van was take away the work support, i am saying perhaps he wanted to expand it. because right now, if you want a woman who is on welfare to go to work to get decent daycare, you

know, i mean very modest daycare for and anything, this would cost a thousand dollars a month in the midwest. i'm not taking about new york city or washington d.c. how can a woman earned a thousand dollars a month and still pay the rent, buy food? she can't. and so, if she hates that cliff in terms of eligibility for daycare at $7.52 an hour, your premise is, or honorable dawkins premise is that she is some sort of lazy than who is lacking in character and therefore shoot what were. and i am saying that she is someone like me who very much wants to continue to work honestly needs more support in order to be old to continue to

work is about as a clarification i would make with regard to our agreement on that. >> mr. larson is recognized for five minutes. >> thank you, mr. chairman. in thank you, mr. tiberi as well. i appreciate this. with which this hearing is being conducted and especially appreciated the value added my colleague from wisconsin brings. and you underscore a point. i wasn't going to speed, but to look at the magnitude of the situation in goes beyond any does. and i am speaking, i think with a great deal of knowledge, just in my own staff here at the capitol. when we talk about daycare, i think pickler, sterling professor of psychology, father of the head start program and the nation under the nixon program said it best. daycare is nothing short of a

cosmic crapshoot for people who are seeking to have their children be developed in a manner that if they could stay at home themselves, which of course they would all prefer, but for the fact that they have to be out in employed. so an underscore is i think what you are saying, representative tran five, the need for us to continue to augment and i think is the chairman is that when we get to these cliffs, what is it at that clip that we have to decide? zigler used to say, why is it that we don't utilize public schools rdn bus routes, save where we can put people there and provide the kind of affordable daycare that is safe, fundamentally sound and would be hopeful? take a look around. ..

good family and if they were not be in that household. it's a crapshoot. as you said, you can do as i did for so many years before i found the day care that finally told me i was going to get the cliff and i send my kids down to the corner to a baby sitter that sat my kids in front of a television

with a stick and if they move she hits them and beats them so much so that my daughter who is now 42 refused to take her brothers down there again. or you can just hang a key are now on your kids mac and send your eight googled and 60 will kid and tell them to stay in the house, don't open the door, fix a peanut butter and jelly sandwich and hope that you are lucky enough that nothing will happen to them while you are gone. those are the actions i know plenty of people that have resorted to those options. if you have to work and it's not if you don't look it's not because you have poor character, it's because you cannot figure that out. you're not lucky enough to be able to figure that out.

>> i thank the gentleman and as one of those kids with a key around his neck from when he was 7-years-old i care very deeply about this issue, and in no way has there been any attempt to prejudice individuals caught in these situations. again though it is the absolutely critical as a nation like great britain is doing that we address all of the process issues of a great agency effectively and be willing to ask the hard questions and by thank the gentleman for her testimony and what i ask for the next panel to come out. thank you. >> thank you mr. sharm and all of you for listening to my testimony.

>> moving on to the third panel joining us today, several distinguished gentleman who are going to share their thoughts on the issues of reforms and addressing issues of taxation and benefits dr. clifford ph.d. professor of economics and finance at shenandoah in university. dr. eugene sterling ph.d. senior fellow with the urban institute, dr. jared bernstein ph.d. senior fellow center on budget and policy priorities and dr. i could run in ph.d. of economic policy congressional relations the american action forum i would like to remind all of our witnesses the testimony is limited to five minutes. all of your written testimony will be made part of the permanent record.

please, proceed with your opening statement. >> good morning. i appreciate very much of the emotion with which certain people have addressed the loss of health insurance upon passing over certain thresholds, and the article i wrote on the dead zone three years ago by myself got a little emotional at those plants it seemed so unfair as well as socially and efficient to have the cliffs over which people would fall and there was an opportunity with health reform to address this. we've grown a series of support to provide an economic safety net i1 of the reports the eitc house has a positive for working it stands out in that regard.

the impact of increasing label force participation with its enactment and upon its expansions. it does testify to the importance of these programs and all those anecdotal there are lots and lots of anecdotes almost everybody knows these anecdotes of people making the calculations about whether working more is worthwhile these people may sometimes are called in gamers' of the system in truth they are harder look office. my mother would complain about not having health insurance and working. she said prisoners get health care when they needed. i said if you need you can go rob the bank. health insurance is paid for primarily by payroll taxes and sales taxes and has a much

bigger apparent cost than our system does. our system has a larger real cost in terms of the disincentive effect in terms of keeping people in a certain status in society instead of moving from addressing security to move into self naturalization engaged with a human person working with diligence and with judgment they are trapped in a different stratus not participating fully with the rest of us in a free society. we should want a seamless transition from the place where we have the economic safety net to the place most of us at least in our lifetime certainly our children will be in their lifetime in terms of acting as a

free person himself actualizing, associating with other people on the basis of a free association. now, i was interested in the other calculations of the number, the actual implicit tax rate is somewhat problematic because of the cliff involved. the eitc phases and and out. that's easy to the tax rate. how do you handle something where you have a cliff where you lose eligibility entirely or the adults will lose health insurance and the children are still covered and they lose eligibility. so, there is hour to making those calculations i wonder whether i should update the calculations i had in my 2008 article in the presentation and the supreme court to speak on the issue of health care reform

and the payroll tax of and above the federal income-tax rate for the first bracket and the tax credit going down so let me have the same calculations i had several years ago. the point is pretty clear. when you consider income after taxes plus benefits you receive that there isn't much incentive for a lot of our fellow americans to work. the take-home affect me be 50 cents person and as much as 100% for others. we should have a big robust positive tangible fact for everybody in our system. this speaks to tax simplification and tax reform so that all pay their fair share, the focus today being the poor and not pay more than that fair

share on the marginal dollar of productivity and the payroll tax is a fairly big tax, and it's paid twice by the worker and by their employer. it is a very large tax. why do we have that tax when we are trying to help people? if you look at an alternate measure of income for the purpose of calculating poverty based not on the official in come the we currently base our poverty rate on, the based on income after taxes, plus benefits at least for the state of minnesota, the urban institute shows you have about the same poverty rate. we push about as many people into poverty, the same people in and out in the process. >> can you sum up? >> we want to have an integrated approach with a robust incentive to work at every phase of the

income distribution. >> thank you very much. dr. sterling coming your recognized for five minutes. >> members of the subcommittees, thank you again for the opportunity to appear before you once again. the nation's real tax system is different than the tax system we know by looking a direct statutory rates such as the income tax. the implicit tax is for phasing out of various benefits and tax programs. expenditure taxes because like tax expenditures, they remain largely hidden from the government and public and get the are a major influence on behavior. these expenditures i want to be clear are a classic liberal conservative compromise, and mr. chairman, you commented about meeting to work together to solve the problem when the reason one has to work together is is in fact a little compromise that got us there in the sense of liberals favored

these types of taxes as a way of increasing progressivity, conservatives have embarked upon them as ways of shaved because saving budget revenues which legitimate goes if they have resulted in very high tax rates. the low and moderate income households are especially affected and seem to be the subject of the hearing. i remind you you have these implicit taxes in the pell grants and dozens of programs including most of the subsidies in the tax system. cubin institutes we have done a lot of work on trying to calculate the taxes. the first draft which you actually see here on the screen is the same as the figure in my testimony. it shows close to the maximum benefits for which a single head of household and two children may be eligible and then held a phase out as income increases. rates are low or even negative up to about 10,000 to $15,000 of income. that the rise quickly in the next figure that i will be showing which is the zenas

figure three of my testimony. i show the effective tax rate for household income rises from 10,000 to $40,000. income and social security taxes take away about 30% of earnings and then universally available programs, by universally i mean available to all of us if we have children. these are items like the eitc that raises the rate to about 55% and for those households that happen to be into welfare programs such as tanif it can rise above 80%. what used to be called a poverty trap has moved into what we would call the twice poverty trap, that is the highway households more than at poverty level incomes. the studies have attempted to show the effect of the rates on work and the results are actually missed. generally in force per dissipation to work at higher income levels, particularly for

second jobs in a family moving to full-time work or as i noted my testimony also for marion someone who has a job is science matters greatly for instance medicaid would discourage work among the disabled more than the subsidy system such as the whole exchange subsidy health reform to help exchange subsidy will discourage work for older people who are encouraged to retire earlier. for the same amount of cash the major conclusion is that the program requires more quote indeed lead to more work than one that does not. the earned income credit and welfare reform have done better on the work front than the ftc. other consequences made examining and means testing joint filing have resulted in hundreds of billions of dollars of marriage penalties for middle-income households and indeed not marrying is the tax shelter for the poor. many programs to help those with special needs although they are very widely efficiency effectiveness so for instance there is some evidence that a

well-developed program can improve behavior such as school attendance and maternal health. at the same time, as an economist, i have to question our ability to judge the long-term consequences of these programs from the empirical studies that we performed. the conservative compromise got us into this situation comes a might require a liberal conservative compromise to get us out of it. among the approaches to reform the i think are worthy of consideration are one, seeking broad based social welfare reform

my first point is i believe it is essential to broaden the question in this hearing. for policymakers to best understand the impact of the policy under review we must investigate and not just any work disincentives they may have but also work incentives, for the sample as has been heard numerous times today the earned

income tax credit, an important subsidy for workers has been found to have large work incentive effects. it lists millions of families out of poverty, working families. surely this is why it was one of ronald reagan's favorite programs. and that raises another dimension along which the programs must be evaluated. to what extent do they achieve the poverty reduction targets? in other words, to examine the marginal tax rates with the anti-poverty programs, risks that include understanding the impact on the program on work, poverty and well-being. so, research on the questions find the following: while benefits of being tested programs are by definition reduced as income rises beyond a certain point, the work disincentives differ and a number of significant programs including the eitc and snap formerly food stamps are not to have either positive or neutral effect on labor supply. the eitc studied in this regard

has yielded the following finding from a recent comprehensive review. the overwhelming finding the empirical literature is the eitc has been successful encouraging of the planet of single parents especially mothers. a recent exhaustive review of the poverty reduction effectiveness of the full scope of our safety net social the insurance program found, quote, the combination of the means tested a social the insurance transfers and the system have a major impact on poverty, reducing the poverty and near poverty rates pay about 14 percentage points in the u.s. population as a whole. the next finding from the study is particularly germane to today's hearing. the poverty reduction impact is only a negligible affected by work incentives which the aggregate have almost no effect on the transfer rate of poverty in the population as a whole. in other words this research finds the significant

quantitative large poverty reduction effect after accounting for any work disincentives implicit in the program. other recent research has found positive to the recital of facts on later education earnings outcomes for children and families to receive such benefits. raising a poor family income by 3,000 year that's for a poor family to receive from the child tax credit or the eitc is associated with a 17% increase earnings and average of 135 hours of additional work per year and low-income children whose families didn't receive the benefits of the safety net programs. one summarize the findings as, quote, a remarkably strong body of research based on large scale implemented experimental research designs showing supplanting the earnings of parent helps raise families of

poverty and includes the performance of young children. this suggests reducing the benefits would get any disincentive affects low income poverty and harm future generations in terms of their educational earnings outcomes. finally, to the extent that work disincentives exist, policy makers should consider ways to eliminate them. the final section of my testimony offer ways to do so. first lower marginal tax rates by extending the phase-out. this increase is cost. provide work support such as child care transportation assistance and food, increase the number of jobs available to low-income workers through the demand side policy given the persistent weakness in the labour market in recent years and want to be sure to stress the importance of the last point research the last few decades has shown the work incentives for working age members of

low-income families are tight labor markets with rising wages. in this regard policy such as job creation measures and president obama job back will prove far more effective and incentivizing work than lowering marginal tax rates on safety net benefits. conversely it would be a significant policy mistake to require that recipients to work without first ensuring adequate job availability even in the climate of strong work incentives without adequate job availability this is a policy a recipe for rising poverty and the accompanying strain on families and children. thank you. puree this amendment to thank you for the invitation to speak here. one thing i've realized through the years looking at the research is that tax rates matter. a very high tax rates no matter where your that in the income ladder tend to detour and employment and how much people want and are willing to work.

one of the things we have seen from research in the welfare is that because of the programs that is pointed out is you have marginal tax rates that regularly reach 40% for low-income people as high as 80% or 100% if you take into account the various state and local programs. no one really designed the program to be this way. former treasury secretary just like the tax system we should have a welfare system that looks like it was on purpose. every program was put in by a well-meaning people but when you have 12 or 13 different programs of the federal and state level and sometimes the local and regional level they act to create disincentives. i know i am preaching to the choir and this appeal to people on the committee and i suspect that's why you have the

honorable duncan smith to talk about what they are doing in the united kingdom and to me that makes a lot of sense instead of having several different programs that may be at odds and create tremendous disincentives to work to have one overarching program it's difficult to implement ai understand especially when we can consider my home town in illinois people who are low-income get benefits of the federal level they get certain benefits that the state level and they also get benefits from the township in self. having a federal government to sign one overarching welfare reform program can be very difficult and it might be impossible to tell the states and the townships to butt out. we need to do something some people are not facing 70 or 80% tax rates. this previous congress as it looked at the program there's been bipartisan efforts to do this and the one thing i would like to recommend this committee

looked at again in to the some two, 2003 there was discussion of reforming the unemployment system. one of the things we see with the unemployment insurance is of the unemployment benefits go on for 26 weeks what happens is when 100 people get laid off 50 or 40% find new jobs and five or ten find jobs hardly anyone finds jobs and seven and the majority of people that were still unemployed find employment. extended to nine months and extent to 12 months the magic numbers 13 months. one of the suggestions of a bipartisan effort was put forth in the committee in 2002, 2003 was to change that to something we would call personal employment accounts people were laid off instead of giving a monthly benefit as long as they didn't have a job they were given basically an account they could use to support their family or get additional

training or education or something like that. it eliminates the marginal disincentives. doing such a thing might be a difficult or impossible for other welfare programs but it's a model that people need to realize. people respond to incentives as the congressman pointed out the might have college degrees but the welfare recipient is able to find out whether it is worth their while and we don't want to do is make sure that people get just enough to get by and provide disincentives for them to work. >> thank you. we will move on to questions now and like to recognize the chairman of the select revenue subcommittee for five minutes. >> thank you. we have a chart that you will

see on the tv monitor. in your testimony you note that for each percentage point loer unemployment the increasing real hourly wages for low-wage workers is at least twice that of the high a wage workers that's been your testimony. january 2,009 your the co-author of an administration report titled the job impact of the american recovery reinvestment plan and the report you may remember you forecast unemployment rate today would be 5.7% with the administration's stimulus plan passing. as we know today is unemployment rate 8.2% and has been above 8% for the post depression record of 40 straight months. is it your testimony that low-wage workers have disproportionately lost out on how your wages due to the elevator the unemployment rate we have seen especially compared with the linen plant rates that he forecast in the ad fenestration trillion dollars stimulus plan?

>> yes, the research as clear as i cited in my testimony will low-wage workers are in economics terms more elastic to the unemployment rate and wages of player income workers and in fact the unemployment rate is high year as well -- higher as well. >> what happened? >> you are asking about the forecast? clearly a different topic in the marginal tax rates on the safety net programs. when we -- the was the administration forecasts for unemployment the same one that shows up in the administration's first budget its forecast of what's called the omb council of economic advisers and the treasury. that forecast was made by an

administration that was just forming in the fourth quarter of 2008. at that time, and unbeknownst to us, the economy was cratering and gdp was falling at a rate of almost 9%. if you look at the statistics from that time as we did, it looked like the recession was far more mild than that and the forecast for orman plan that you saw was the median forecast a fall of the forecasters at the time. you're absolutely right that we miss the depth and severity that so does almost everyone else. i will say once the recovery act was implemented, it was a matter of two quarters later in the quarter of 2009 gdp was rising again. that's a mark of how successfully was breaking the back of the great recession will be yet the unemployment rate

continues to rise. >> the new exchange subsidies penalty the new exchange provided by the obamacare would create a would like to highlight the fact the subsidies also impose a marriage penalty through the tax code and that is because the key federal poverty guidelines and under the poverty guidelines let's say a family of two is at 135% poverty level for a single individual rather than double. that means for example the individuals earning $23,000 a year would lose about $1,400 a year in subsidies if they became married in one household earning 44,000 more than 22,000 each. can you expand on that? >> the major problem with the affordable care act in terms of how it's increased in the marginal tax rates, in general

which provides a subsidy to people who are to go to the exchange to go to buy health insurance of the below the poverty rate and the phase-out is relatively steep my bostick on the subject basically laid out marginal tax rates to ten percentage points based on the phase out subsidies to the exchange associated the affordable care act. so this impacts low-income individuals at the lower marginal rates? not just this area of the tax code? thank you. i yield back. the chair recognizes mr. doggett for five minutes. >> thank you mr. chairman paid to the witnesses agree it's important to maintain its current form the earned income tax credit?

>> yes. >> i would like if it is possible to eliminate the phase-out or blind that into the tax code. i would expand it to find ways to include single people and by the way as a substitute tax break that i believe is both on the keynesian supply-side ground center for recovery than could be so expansion income credit could be cheaper. >> the expansions but congress supported to the eitc in the recovery act have proven to be extremely helpful in all of the ways you heard this morning. i would try to ensure that they remain a part of the program. >> let's talk about health care for just a minute. if i have a high-tech employees in boston who has a great idea

for a startup, but a family of children with serious illnesses it is a decision for that person to stay with their group health insurance rather than go out and benefit society by creating a technical start up. similarly, if i have a core person that can qualify and it's very difficult because the state under governor perry is about trying to prevent anyone from getting health care but if they manage to quantify for benefits in the state of texas for health care and they choose not to seek a higher wage job in order to maintain that eligibility for medicaid, that also would appear not to be an indication of lack of willingness to work with an informed decision to try to provide health care protection.

we attempted to respond to both types of informed decisions with the affordable health care act and over time will be available the particularly the expansion of access for poor people to health care removed and a cliff or disincentive to work to create new jobs and businesses and economic opportunities. >> i think that you are having the kind of nuance i try to reflect in my testimony which must be brought to the criticisms by my colleagues here on the panel by the implicit affordable care act. one of the most important is the affordable care act expands medicaid therefore pushing out and lowering any marginal tax

rate or work disincentives associated with that program quite significantly, and one of the studies i brought with me today stimulates this impact and predicts that the affordable care act accounting for the disincentive you heard here but the incentive that i just mentioned would actually significantly increase the employment of single mothers. the affordable care it also reduces job lock which is what you mentioned that is a highly inefficient problem for people in the wrong job because they will lose coverage if they leave it increases subsidies for small business and by the way if it lowers health costs as expected that will of course be very positive for job creation as well. i think what i try to express in my testimony is you simply can't do what some of my colleagues have done today which is look at the marginal tax rates and assume that they reduce labor supply. you have to get into the actual functioning of the program and the empirical outcome. we can't do that because it's not in place. with one exception,

massachusetts. massachusetts has a health plan much like the affordable care act and there is a very nice study that looks at the end planet affect health reform in massachusetts compared to neighboring states which face the same economic conditions but don't have that health care different and finds no unemployment defect at all so i would be very wary of the simple prediction that says if a tax rate bumps up it must have the effect without considering the kind of nuance is that i think occur in their real world. >> the gentleman's time has expired. >> thank you mr. chairman. mr. shapiro, the economists and researchers have noted for decades that the interaction between welfare and tax benefits can create little incentive for low-income families to work. is that still pretty much the

consensus among economists? >> if i try to find in my testimony i think what has happened over the last two or three decades is we have moved out what used to be called a poverty trap to what i now call the place poverty trap. dr. bernstein is right if you ask about the reforms have done, the effect of the probably increased labor force participation. with the research is showing is particularly for the welfare members that didn't work the incentive can only be positive going from welfare earned income credit going from welfare the incentives are only towards participating the labour force. what has happened is once you learn a little bit of money and get to 10,000 or 15,000 that is with the disincentives largely stripe was a that's also one reason we get mixed effect on how you measure work. there's also something we haven't discussed which is decrease productivity but increase the workers.

they don't do the job at 40,000 but a full-time job a couple low-income workers work for ten hours to increase labour force participation yet you'd decrease output. i realize i'm giving a more complicated message with the disincentives are basically moved up the income distribution the same thing would be the affordable care act that we were just discussing. as you move out away from the disincentive of medicaid to move to the disincentive distribution i pointed out in my testimony that the affordable care act will help the disabled go to work but it's going to encourage more elderly people without having to retire so it is a complicated message. the tax rates do discourage work but the question is how much and for whom and is this particular

design once you accept the structure better than some other design. >> another part of the testimony secretary smith was that they had seen some disparity in those that are disabled and as you know in our system now, we have over the last few years almost 700,000 more people on our disability role than we did before the recession so i would like each of you to make a comment about whether you think this enrollment disability has to do with of tanning -- obtaining medicaid and in his case he said there was very little incentive for someone was disabled in the u.k. to go into the ranks of the employed. do we have a similar track in

the system now? >> i would say if people have a robust incentive to work and we could rely on their good judgment about whether they are permanently disabled or not in the lobbying and when we don't have that robust incentive to work we might suspect since the person is not balancing the consideration that person faces individually we face as a nation in terms of having a safety net in place, and never the less wanting everyone that can work to the extent that they can. >> asking what i think is the toughest question social welfare is how we design a program for the disabled. as i mentioned among those near retirement, disability insurance

favors disability that old age insurance retired disability 62 you get 30% higher benefits that you retired on insurance street creates that type of incentive if you have moderate disability to visit pitcher to figure out if you can't top of the system to have huge medical needs the system has deutsch disincentives' once you get the medicaid to go back to work because you are scared not just about losing your health insurance but if you take a job that has of insurance you're not sure how long you're going to last on the job and you are afraid of having to get back to the system. i don't have an easy answer for you. disability is absolutely required there are too many disincentives in the system but it's a tough issue to handle. i think that there are some where we clearly can work. >> just two very brief points, congressman. first of all, this is just

repeating something i think was said a minute ago, the affordable care act by pushing out extending from expanding medicaid eligibility including to the disabled actually reduce is a disincentive and it is pro board endorsing for disabilities such as they can go to work is what kind of produces a cliff which is helpful. my second point is i think implicit in your question was the idea and numerous folks have looked at this the extent to which the disability wheels are rising faster than we might expect them to and the long-term unemployed using disability as a replacement for unemployment insurance. the research suggests there is some of that going on but one of my colleagues has looked at those numbers adjusting for age

and the population. the population ages there's going to be more disability and that is creating significant upward pressure as well so in some level it pushes back on that idea that folks are legitimately getting on the role. >> the time is expired and recognizes mr. kneal for five minutes. >> the point that mr. bernstein mentioned earlier one of the things significant about that massachusetts plan is the consumer satisfaction rate. it remains pretty popular across-the-board. small business, large business, carefully negotiated in the discussion we are currently having and once it is implemented people have a chance to see the investment. we are talking about going back in the previous system including the association.

they all make sure that would work regardless of what the court does tomorrow we are dedicated to making the plan work and nobody talks about bringing it out. let me just -- before i go back to raise an issue which you i spoke earlier one of the things we did in '96 on the welfare reform bill which in the end was a series of artful compromises we did talk about job training, transportation incentives, child care, day care, but also one of the things the was a very important and down on a bipartisan basis was the whole notion of child support. would you speak about that experience? because i think it bears noting as we go forward. >> i will. if i may comment on your massachusetts, and first.

they look at the impact of the affordable care act on business small and large and they were as follows creating a well functioning insurance market also prevents an inefficient allocation away from small firms by leveling the field among all sizes and competing in the labour market, which is a complicated way of saying what you said very plainly which is that the large firms are much more likely to offer comprehensive health insurance for the workers need a system like the one we have in massachusetts gives them an advantage and a disadvantage in terms of from the workers perspective in terms of job lock. if you have a more comprehensive system as the affordable care act would prevent small firms are then lose that competitive disadvantage to large firms in competing to make child-support is one of the many works

supports that i would argue goes further in incentivizing work than tweaking the marginal tax rates with this quality child care, transportation assistance, job training and education, subsidized employment which was a program that worked very well in their recovery act and incentivizing employment. the kind of work supports have been shown to be much more consequential helping people move from welfare than the changes in the marginal tax rates. >> when you are in new england where we saw the textile industry leaves and then we saw the manufacturers began to depart over the last 50 years, i must tell you based upon that solid manufacturing history, i never met anybody in the family's i've known over all those years and planned to extend unemployment benefits if they thought they could get another job in a similar

industry. >> i also came from a manufacturing center in illinois in the home of the tractor company. they went through the recession the rest of the country did and basically over 50% of the blue-collar employees for caterpillar's factories in east peoria were laid off we had a great example of that just in our home town. anyone that had a home building done basically hired someone that did a forecast on the side and presumably with no tax paid and these were people with a blue-collar caterpillar workers from some people might indeed be working but they are not necessarily reporting their income. spinet people with that strong history of work for good solid work ethic want to go back to work of the confined one similar

to the one they lost you get laid off and it becomes a rational decision. i think if you decide that you realize you are getting half of your salary it might make sense for you to take a few months off. when i was a professor in wisconsin, i knew people that worked at oshkosh and what they knew they would have to do is ask for volunteers and there are all kinds of people that would volunteer to be laid off because they had other things they want to do. the chair now recognizes mr. byrd from north dakota for five minutes. >> i thank the panel for being here. this is obviously a critical debate and issue and probably won't be totally solved today. but obviously, our goal is to

lift people out of poverty and try to create a system that encourages the and result where people are self-sufficient, so the thing that obviously is clear today is the programs and the tax as these are combined really create a barrier to help lift people out to read we talked about the dead zone and the poverty trap and my question and this is how do we fix this to encourage people to work? mr. thies if you want to start? >> we can stress the payroll tax if it comes in a dollar of earnings and so while while the federal income tax is highly progressive and has a very generous brackett, the working

people of low-income and moderate-income of today are paying much higher taxes than people in the 1960's when the payroll tax was 4% and the employer managed that. >> my first comment reflect the previous discussion on unemployment compensation and on disability. if there is evidence and i think the panel will agree if you design a program so that you have quicker earlier intervention it seems to make a lot of difference because in some cases for the unemployed and disabled it is the habits that are developed in the period of unemployment disability that continue so there are some proposals are not the you try to find ways to put more incentives to employers to try to do this so that is one area we can work. i mentioned a lot of other relative shift citing the can make once we agree we are going to have a social structure this isn't going to go away so the question of was related issues

we can make and when i think we can make a greater requirement for some of the benefits. which would be a rather direct thing. the other which is a much broader fee six examining is the social welfare budget is expanding every year. this doesn't matter with republicans or democrats, the economy doubles and 50 years or 40 years will devote 90% more than republicans and 100% more. it's growing. we took that gross not towards so much on the consumption and quite honestly not so much on paying very high cost of care retirement benefits and shifted more towards incentives towards work and have a variety of other proposals in the testimony i don't want to take too much time. i would be glad to discuss them with you. senate if we are going to have means tested programs that phaseout as incomes rise it is a function of the safety net. we are going to have the marginal tax rates so my answer to the question is the best that we can do to have that phase-out

be as long and gradual loss possible that there is a trade-off with cost. i think the evidence is clear that helps in the case of the eitc were certain states where the marginal tax rate is cut. the transportation child-care assistance i would argue much more important in the marginal tax rate and third and this is the key committee adequate availability of jobs and that is taking more to the demand side. i certainly wouldn't think of adding work requirements or other programs that don't currently have them in a climate there certainly inadequate job availability. schogol want to pick up on something said about the importance of people entering the work world and learning how that works right away before they get trapped, and to that regard i just want to add one other thing which is that the minimum wage can also have the

disincentive for people especially teenagers to enter the work world, and encourage the congress to think long and hard before the increase that again. >> thanks. >> i will thank the gentleman and recognize mr. larsen from connecticut for five minutes. >> thank you, chairman and again i want to commend you and mr. tiberi for the spirit and by partisanship which this is held to really have the recent opportunity about a year ago to travel to china and got in a heated debate, one that this committee is familiar with about the china currency and also the trade disparity that exists between the countries. and a former ambassador made the point and said how many people do you think we have lifted out of poverty in china and i didn't know to be honest. it was around 320 million which

is the entire population of the united states. they were able to do so by investing in their infrastructure. to prove that point we drove them beijing to lower montpelier and witnessed all the investment in infrastructure. i raise this point because dr. bernstein you're point about the adequacy of jobs, and after all the discussion about the marginal tax rates and incentives versus the disincentives, fundamentally people weren't going to be able to work if jobs are not available to them. so, while there has been much who will not be against a we are going to create jobs here, we sit in a congress where we have yet to take up more than 100 days of transportation that as the season eclipses' fundamentally the president's request of last september to

have his bill taken up in terms of jobs is not -- i last year and then i have a question for dr. steerle also. what would the effect of the president's jobs plans be on incentives for americans that currently can't find a job? and then the german system where they incentivize work buy instead of playing pay and unemployment they pay the company would direct subsidy to retain the person in that job instead of having them go outside to work. dr. bernstein? >> define the inputs for a second of a question we have to work sharing program here. there is, and some of the other colleagues of here may agree with what i'm about to say even though i know they are more focused on the tax rate side. there is no better social welfare program, no stronger

social welfare program for reducing poverty than an adequate availability of good jobs for low wage peoples than a tight labour market for employment labor markets where a instead of an excess supply of low-wage workers there's an excess demand and i think we saw that clearly in the second half of the 1990's where there were a lot of moving parts, welfare reform, higher minimum wage, lots going on. but even in the midst of all the disincentives that we have been talking about today, we saw the employment rates less skilled, a disadvantaged workers, poor workers, single moms go to the highest rates on record and poverty rates dropped to some of the lowest. simply put, no better program. >> ready to make a very good point. i think we could learn of lot from the system although it extends beyond a part you

mentioned the german system is especially good at sponsoring apprenticeships and favoring people don't go to college not just those that do something i don't think we did a good job in this country and my colleague works on this issue talking about that already. you can change the unemployment devotee and engage an employer in the sense that you could experience the read a little more so there's some consequence the employer it's not so much even the employer has to pay the full burden but it would be nice to have somebody there with help with this earlier intervention which is sometimes harder for the government to do so there are ways in which we can george used to express the government works best when it's a collective enterprise. by using the term collective, i think what he meant is, i know what he meant is by increasing

our academic private sector and government pulling together we have an engine of growth and opportunity. what models have you suggested or do you suggest that we would follow to achieve those and have some of the concerns the chair has raised about coming to the press of this making sure we are doing the right things. >> it fits with what jared bernstein was saying. the long term in june for all of this is economic growth. and i keep mentioning the economy we think is going to expand over time and i encourage you to think about how we restructure the health care system in a very broad sense for for five, ten, 15, 20 years from now if you look for the government budget put forth by president obama come if there was a republican budget the same thing. we're planning on spending a trillion dollars more in another ten years per year about a trillion dollars more. it turns out almost all of it is

going from interest on the debt and social security medicare medicaid for children. they don't favor unemployment at all. if we think about how the government resources are more towards favoring employment we go a long way. and then the other advantage is if you get economic growth in the relative wage for working starts growing and growing relative to just a sort of subsidy for the government, so you can't affect -- we are talking of marginal tax rates but it's the relative hurtle at what point is going to work. >> the war cost of some $3 trillion having war and that tax cuts -- >> the gentleman's time is expired. >> on page nine of your testimony, you say they would be a significant policy mistake to require the recipients to work without first ensuring adequate job availability.

this is the same argument some made against welfare reform in the 90's but it was wrong to require work without guaranteeing, "adequate job availability *close quote for everyone which makes me wonder how do you define an adequate job availability? >> that is a fair question. i was there at the time thinking and writing about welfare reform. i didn't mean to imply that there would be a guaranteed job for everyone. what my statement in my testimony was meant to stress that absent stronger labor demand right now if you look at the low-wage labor market for example you will find that there are far more job seekers than there are availability. that is a function of the recession but even in a stronger economy and the business cycle the market is characterized by access to not enough jobs. i would argue it is quite successful moving people from welfare to work for the purpose

of unemployment in the 90's i mentioned to actually been quite unsuccessful ever since even with relatively low overall unemployment rates in the 2000. largely regarded as a success it hasn't been the last decade or so it the job market has weakened so my point is as we were just reflecting coming to have to have a very strong demand function of the low-wage labor market if you are going to require work to reduce poverty to reduce the liquidity of the other panelists like to comment? >> dr. thies? >> during the period of economic conditions that through statutory means and administrative discretion its private charity system also relaxed eligibility standards extended unemployment benefits and so forth because of the object of we more difficult

circumstances facing people who are vulnerable. having said that, it's understandable that when we do have a robust recovery, we are going to revisit some of those things. ..

we really have a haphazard welfare system that creates terrible disincentives to work in all kind of places. and not only relatively though incomes, but the son of income effects of higher incomes. it is beyond time to redesign the system and think about it more realistically about the event program by program and come up with some you never miss a disincentives. >> i want to thank the witnesses for coming today and your patience to the early changes in the schedule. it has been very helpful, the answers you provided how tax policy and welfare policy can create disincentives as well as incentives to work and hopefully we will continue to work in the town that had to address the broken processes we have between the agencies to harmonize this and get to the point that mr. brannon talked about at the end in a bipartisan way. its members have additional questions that were submitted in

writing. we would appreciate if you would apply to the committee so we can have this inserted into the record. thank you again. and with that, i conclude the hearing. [inaudible conversations]

>> cary sherman goes to the white house insists to eleanor roosevelt, may i pray for you? and she says no. we need to pray for you. >> there are the promises made. you would have to halt very much larger than a cent to get all the people to check in the vice presidency that year. >> calvin coolidge may have inundated the last jeffersonian camp. the limits of governmental federal power. to extend it.

>> the supreme court is expected to announce its decision tomorrow morning in the case challenging the constitutionality of the new health care law. c-span 2 will have live coverage at 3:00 a.m. eastern on the final decision on the courts terms released. the supreme court heard oral arguments on the help a lot in march. over the next two hours to hear the arguments of the constitutionality of what is known as the individual mandate requiring people to purchase health insurance. the administration argued under the commerce clause of the constitution commits such a mandate is acceptable. justice kennedy described a mandate is unprecedented. >> we were continuing argument this morning at his 11398. the department of health and

human services in florida. >> mr. chief justice, may it please the court? the affordable care act addresses a fundamental and enduring problem in our health care system and our economy. insurance has become the predominant means of paying for health health care in this country. insurance has become the predominant means of paying for health care in this country. for most americans, for more than 80% of americans, the insurance system does provide the fact of access. excuse me. but for more than 40 million americans, who do not have access to health insurance, either through their employer or government programs such as medicare or medicaid, the system does not work. those individuals must resort to the individual market.

in that market does not provide affordable health insurance. it does not do so because the multibillion-dollar subsidies available for the employer market are not available in the individual market. it does not do so because every sat and had put regulations preclude -- that preclude discrimination against people based on medical history to not apply in the individual market. that is an economic problem. >> is that the federal government can address directly? >> they can address directly and they are addressing it directly through the act by regulating the means by which health care -- by which health care is purchased. that is the way the fact works. under the commerce clause, what congress has done this to enact

reforms of the insurance market directed at the individual insurance market that preclude -- that preclude discrimination based on preexisting conditions here and reuse system and encourage predation necessary to carry into execution those insurance reforms. >> you create commerce regulated? >> that is not what is going on and were not seeking the law on that basis. in this case, what is being regulated as the method of finance team the purchase of health care. that in itself is economic activity substantially affects on congress. >> any self purchasing? you know, if i am in any market it all come to my failure purchase them in that market subjects me to regulation.

>> no, that is not a position at all, just tiscali. the health care market is characterized by the fact that aside from a few groups congress chose to expand from the men of courage required that, for religiouscover this in a car seat in the entrance, virtually everyone else is he doing that market or will be in that market and people cannot generally control when they enter into the market and when they enter into the market. >> for the truth emergency services, police, fire, ambulance, roadside assistance, whatever. you don't know when you'll need it come in matching it will come of this industry is true for health care. you don't know if you need a made heart-shaped santora to go. so there is a market to some extent will participate in it. can the government require you to buy a cell phone because that

would facilitate responding when you need emergency services you could just ideal 9-1-1 no matter where you are? >> chief justice that's different. i don't think we think of that is a market. this is market regulation and in addition to the situation not only where people enter involuntarily assuming the answer and mobility control. >> it seems the same in hypothetical. you don't know when you need police assistance. you can predict the extent to emergency response sony. but when you do the government provides it. i thought that was an important part of your argument that when you need health care the government will make sure you get it. >> when you need police assistance or fire assistance or ambulance assistance the government will make sure to the best extent it can get you get it. >> the fundamental distance unshared is not an issue of

market regulation. this is an issue of market regulation and that so congress -- that is so congress looked at this problem. this american insurance provided to a market system. >> do you think there is a market for aerial services? >> for burial services? >> i suppose we walked around and from healthy young people and stop researching what you're doing? who are financing burial services rate now because he'll die in some of the hot update. if you don't have burial insurance or have it saved money will shift costs to someone else. is that an artificial way of talking about what someone is doing? >> that is true. whisenant equally artificial to say someone who's doing absolutely nothing about health care is financing health care services.

>> i think is completely different. the reason is that the burial example -- the difference is here you are regulating the method by which you are paying for something else. health care. the insurance requirement -- the key thing here is my friends on the other side acknowledge it is within the authority of congress under article i to impose guaranteed issue and community rating for to add, to impose the minimum coverage provision. it just has to occur at the point-of-sale. >> even get aerial insurance, health insurance. most people need health care. everybody is going to be. her cremated at some point. one big difference, justice alito is to drive the cost shifting to other participants. if you don't ignite the state is going to pay for it.

that's a significant difference that in this situation, one of the economic affects congress is addressing is that the many billions of dollars of uncompensated costs are transferred directly to other market participants from a transferred to other participants because health care providers charge higher rates in order to cover the cost of.com did he care and reflect a higher rates and higher premiums come which congress translate $2000 per family. >> is not a small part of it demanded is doing? correctly at the figures are wrong, but it appears to me that the cbo has estimated the average premium for single insurance policy in the market will be roughly $5800 in 2016. respondents of the economists who supported estimate of the young healthy individuals targeted mandate on average

consumes $854 in health services each year. the mandate is forcing these people to provide a huge subsidy to the insurance companies for other purposes that the act wishes to serve. but if those figures are right, isn't the case with the the mandate is doing is not requiring the people who are subject to it to pay for the services they are going to consume? it is requiring them to subsidize services that will be received by somebody else? >> i do think that is that the respondents argue. it's just not right. it really gets to the fundamental problem. >> that is how insurance works. >> day that is how insurance works. >> it is not that problem. a guaranteed insurance community reform do not have the effect of forcing insurance companies to take on lots of additional people who they then can't afford to cover because they

tend to be this sick. the fact is that is the exact opposite. when they guaranteed reading reforms and you do so in the absence of the minimum coverage provision is not when insurance companies take on more and more people than me to subsidy to. it is that fewer and fewer people end up with insurance because the rates are not regulated. insurance companies that they have to offer the community rating they're entitled to make a profit. they charge rates sufficient to cover only the sick population. >> help me with this. assume for the moment you may disagree. assume for the moment this is unprecedented, a step beyond with the case has allowed. the affirmative duty to go into commerce. if that is so, do you not have a heavy burden of justification? i understand they must present laws are constitutional.

even so, when you were changing the relation of the individual to the government and what we can stipulate is i think a unique way, do not have a heavy burden of justification to show authorization under the constitution? >> two things about that, justice kennedy. first, we think this is regulation of participation and mouth scare market. other minimum provision does is considered requiring insurance insurance at the point-of-sale, that congress has the authority under the congress power to ensure that people have insurance in advance of the point-of-sale because of the unique nature of this market, because this is a market in which -- in which, although most of the population is in the market most of the time, 83 or

send visited privation every year, 96%, virtually everybody in society in this market and you've got to pay for the health care u.k. the predominant way and which is paid for and insurance. congress could require that you have insurance or not it to get health care or her bad health care be provided. >> when do you find the market proudly health care? and they will be everyone is health care, but not everybody needs a heart transplant. not everybody needs a liver transplant. could you define the market? >> you defined the market as food and that therefore everyone is in the market and you can people buy broccoli. >> now, that is quite different. the food market, while the shares to trade that everyone in

senate, it is not in market in which participation is often i predict an often involuntary. it is time to market in which you don't know before you go when and it is not a market in which you go when i seek to obtain product or service. >> is that a basis for other situations. >> you could also say that persons subject to this has blue eyes. is that a principal basis? >> is the basis, but is it a basis that shows this is not going beyond what the enumerated powers allows the government to do? >> asked for two reasons. >> the test scores articulated

with the substantial cards. the way the statute satisfies the tests. >> mr. verrilli, your main point i like food or any other market, when you make the choice not to buy insurance, even though you have every intent in the world is self-insured to say for? when disaster strikes come you may not have the money and the tangible results of a there is one brave the maryland hospital bills and 7% more because of the uncompensated cause and a thousand dollars more. i thought those unique about-face that whether i buy a

product to keep me healthy, but the course i am forcing our other people sooner rather than later. >> that distinguishes the market. >> if that is your difference and somewhat uncertain about sure answers to justice kennedy, can you under the commerce clause create commerce for previously nonexistent? >> i thought the answer is that since macola versus maryland brings the card said congress could create the bank of the united states which did not previously exist, and which job was to create commerce did not previously exist since that time the answer has been yes. i thought the answers can the government in fact require you

to buy cell phones. with comparable situations if we have for example a uniform united states system for pain variable, such as medicare variable, medicaid variable, risible emergency variable side of the road in congress wanted to rationalize the system. whitney and cbs? same with the computers on the cell phones if you're driving by the side of the highway and the federal emergency service as you have certain mufflers for your cars that don't hurt the environment. >> it does, justice breyer. if congress were to enact laws like that,

>> i do think that we are advancing a narrower -- >> whether there are any limits on the congress class, can you attend by some limit on the commerce clause. >> the rationale purely under the commerce clause for advocating here would not justify purchases of commodities for stimulating demand that would not justify purchases of insurance for the purposes and doesn't service and not they. >> if congress says the interstate commerce is effective, isn't according to your view. >> we think that the difference between those situations is that

congress would be existing commerce come academic activity already going on. people's participation in the market is regulated to deal with existing effects. >> the passage in your reply i didn't quite grasp. the same point you said health insurance is not purchased like a car or broccoli. it's a mean of financing health care consumption and covering universal risks. they are purchased for covering the need for food. health insurance is the means of payment for health care. it is not the means of payment for anyone else.

>> it is satisfying >> and the market already occurring at health care services. the creation of commerce clause does not take this step is just to find the creation. >> you may go back to justice breyer. i interact is your answer to my question and tell me if i'm wrong about this. i'm a major, major point of your argument was the good people who don't participate in this market are making a much more important that they do. they look at services if they

can afford the point i need them and the result is everyone else's premiums to raise. it's not your first choice to do some thing yourself. what you do is going to affect others, affect them in a major way. >> that absolutely is a justification for congress' action here. that is existing economic activities. >> you could say that about and buying cars. the price that those who buy cars pay will have to be higher. see you can say in order to bring the price down, you are hurting these people by not buying a car. >> your say people have to buy more for insurance because you're not buying it. >> you were going in the health care market, the marquis of the

ability to pay for y2k, getting the social norms that allow to which we've obligated ourselves. >> don't obligate yourself to that point. >> i can't imagine the commerce clause was prepared congressmen taken into account the social norm. >> you can do it, but does that expand your ability to issue mandates to the people? >> is not a purchased mandate. this is a law that regulates the method of service is assuming they are inevitably wealthy. >> general, i see three stands of arguments in your previous and one of them is echoed today. the first strand that i see this congress can pass any necessary allies to attack those powers

within its rates, i.e. because they made a decision to affect mandatory issuance of ensuring, that it could also obligate the mandatory purchase of it. the second strand i see it self-insurance affects the market. on the government can regulate those who self-insured. the third argument is that what the government is doing amazing to see our commuter making today, that with the government is saying, if you pay -- if you use health services, you have to pay with insurance because only insurance will guarantee that whatever need for health care you have will be covered because

virtually no one perhaps with the exception of 1% of the population can afford the massive cut if the unexpected happens. this third argument seems to be saying what we are regulating this health care. and when you go for health services you have to pay insurance. since insurance won't issue at the moment you consume the product, we can reasonably come unnecessarily tell you to buy it ahead of time because you can't hide at the moment you need it. which of these three is argument? i'm just not sure. >> in the state this way. the congress enacted reforms of the insurance market. the guaranteed issue rate of

reforms did so to deal with the very serious problem that results in 40 million people not being able to get insurance and non-access to the health care market. everyone agrees that those are with encompass article i power. the minimum provision is necessary to carry those provisions into execution because without them come without those provisions, without payment coverage, guaranteed community rating will make matters worse, not better. it will cost more. >> so on that realm, you answer affirmatively to my colleagues put it best to the question, can the government fortune to congress? there's no limit to that. >> no, that's the first part of our argument. the second part is that the means congress has chosen. it is a means to regulate

economic activity, namely your transaction amount care market the substantial effects on interstate commerce is the conjunction of those 218 provides particularly secure foundation under the commerce power. >> yutaka couple times on other alternatives congress might have had, the respondents suggest to do with this problem. in particular alternative of mandating insurance at the point at which somebody goes to a hospital or emergency room and asks for care. to congress consider this alternative's? how should we think about the question of alternative ways of dealing with these problems? >> attitude think that the planet difference between a fence on the other side is one of timing. they agree congress was

article i authority to impose insurance requirement further penalty at the point-of-sale and they've agree congress has authority to do that to achieve the same objectives in the coverage in the affordable characters designed to achieve. this is a situation which we talk about the means in which congress gave substantial difference in the choice of means. upon exit of the difference between the means they say congress should have chosen in the means congress to choose, you can see why was eminently more simple for congress to choose the means that it chose. >> i'm not sure which way it cuts at the congress has. what say you could use the tax power to raise revenue and have the health service, single-payer. how else does that factor into our analysis clinics and one sense it can be argued this is that the government is doing. it have to beyond nastiness to correct power. on the other hand it means since the court can do anyway within a certain certain amount of

latitude. i'm not sure which way the argument goes. >> when they get back to the question you asked me earlier. i do think one striking feature of the argument here that this is a novel exercise the powers that congress chose to do was to reside on our connectedness sense and efficiency in a method that has more choice than what the traditional medicare or medicaid type model. this is so ironic to suggest that count against it. beyond that in the sense that its novel, this provision is novel in the same way are unprecedented in the same of the sherman act was an precedented when the court upheld that the northern securities case, with the stockyards act is unprecedented when the court upheld it or national labor relations act was an accident and the court upheld for the terry price supports.

>> all involves commerce was no doubt what was being make it they did was commerce. and here you are regulating someone in commerce. by the way, i don't agree developing a mortgage here is health care. you're not regulating health care. you are regulating insurance. it is the insurance market you're addressing. some people not in it must be in it. that's different from regulating in any matter. >> to the extent we look at the comprehensive scheme, justice scalia, it is regulating commerce that exists out there. the means in which the regulation is effective, the minimum coverage provision is regulation of the way in which people participate the net that has the health care market is that it is. i think justice kennedy, getting back to the question asked before, what matters here is whether congress is choosing its own reasonably adapted to the

congress is confronting. that may mean that the tool is different from the total congress has chosen to use in the past. that is not something that counts against provisions in a commerce clause. >> it is both necessary and proper and what you just said addresses what is necessary. has to be completely adapted. necessary does not mean essential. in addition to being necessary, it has to be proper. we thought into cases that the reasonably adapted was not proper because it violated sovereignty of states, which was implicit in the constitutional structure. the argument here is that this also may be necessary, but it's not proper because it violates an equally precedented come at the federal government is not a government that has all powers.

it is of limited powers and that's how this questioning is about. what is left of the government can do this? what else can it not to? >> this does not violate the norm of prosperous the court articulated in new york because it does not interfere with the states as sovereigns. this is a regulation -- >> that was my point. that is not the only constitutional principle that exists. the principle is the principle that the federal government is a government of enumerated powers and the vast majority of powers you made in the states and do not belong to the federal government. to acknowledge. >> the way in which this court in cases have policed the boundary of what's in the national sphere on the posters

ask whether it regulates his substantial commerce. here it's really impossible in view of our history to say congress is invading the states fear. this is a market in which 50% of the people in the country get their health care through their employer. there's a massive subsidy of two and $50 billion figure that makes that much more affordable. have to regulate that to ensure that the kinds of hands on preexisting conditions and pricing practices in the individual market don't occur. >> whatever the states have chosen not to do, the federal government can do. >> the powers not given not just to the states and the people. >> the argument here whether they buy insurance or not. >> this is that the court has

said. >> congress would be upheld. that is what is going on here to embark on the analysis to embark on his loughner style process. >> the key and loughner as we were talking about regulation states. states are not limited to enumerated powers. the federal government is entirely different question than you ask yourself whether or not they're going to the limit federal power as opposed to that of the state, which was the issue and loughner. >> i agree, except mr. chief justice with the court has said as i read the court's cases that

the way in which you ensure the federal government stays in its sphere and the state is protected is by policing the boundary. as the national governor regulating economic activity a substantial effect on commerce. a >> the reason this is concerning us because it requires the individual to do an affirmative act in the lot of tourists come has been if you don't have the duty to rescue someone if that person's endangered the blame in a sock in front of the car you do not have a duty to stop them unless their simulation between you. is there a moral criticisms of google, but that is generally the rule. here the government is saying that the federal government has a duty to tell the individual citizen that that fact. that is different than what we have in previous statements. that changes the relationship of the federal government to the

individual and a very fundamental way. >> i don't think so, justice kennedy because it is predicated on participation of individuals in the market for health care services. it happens to be a market that the group is close virtually everybody participate. it is a regulation of participation in that market. >> it is critical how you define the market. as i understand the policies requiring people to purchase must contain provisions for maternity and newborn care, pediatric services in substance use treatment, it seems to me you cannot say everybody is going to be substance use treatment, pediatric services. and yet that is part of what you require them to purchase. , pediatric services. and yet that is part of what you require them to purchase. , pediatric services. and yet that is part of what you require them to purchase. part of what requires entities trying to define essential coverage. >> my theory is thursday market

in which everyone participates because everyone might need a certain range of health care services. and yet you require people who are never going to need pediatric or maternity services to participate in that market. >> with respect to when insurance is to cover, your honor, congress is making the judgments of what the appropriate scope of coverage is. the problem in this market is that for -- you may think you're perfectly healthy and you are not -- you are being forced to subsidize somebody else. this is not a market in which you can say there is an immutable class of healthy people who are being forced to subsidize the unhealthy. this is a market in which he may be healthy one day and you may be free unhealthy practice event the next day. that is the fundamental difference the next day. >> that doesn't apply to a lot of which are required people to

purchase. pediatric services, maternity services. you cannot say everyone will participate in the substance use treatment market. and yet you require people to purchase insurance coverage for that. >> congress -- congress is enacting economic regulation here. it has latitude to define the attributes of essential coverage. that doesn't seem to implicate the question of whether congress is engaging in economic regulation in solving an economic problem. >> are you denying this? if you took a group of people subjected the mandate and calculated the amount of health care services this whole group would consume and figured out the cost of the insurance policy to cover the services that group would consume, the cost of the policy would be much, much less than the kind of policy dispute with one not be required to

purchase under the affordable care act? >> welcome the way they are young and healthy that's true, but they will not be young and healthy forever. they are on the other side of the equation at some point and of course you do not know which among the group is the person that is going to be hit by the press are just definitive diagnosis. >> are your taken into account and they are unexpectedly contract or be diagnosed with the disease that is very expensive to treat. if you take their cost-effectively that come about is a lot less than the amount of be required to pay. >> c. you can't just justify this on the basis of trying to shift their costs off to other people, can you? >> to people in that class get benefits, justice alito. they get the benefit they would not otherwise have, which is an enormously valuable benefit.

in terms of the subsidy rationale, i think you would be unusually to say for it to subsidize telephone rates for a century or set the exercise and a way which some people paid rates that were much higher in order to subsidize. >> only when you make phone calls. >> is to live in the modern world. everybody needs a telephone. same thing with respect to the price supports that the court upheld the murder but kerry and rockville. you can look at the advantageous context is transferred sunday's post is theoretically sure you can raise their kids about milk, but the reality is coded to store store and buy milk and the commerce power is subsidizing somebody else.

>> in this context, subsidizes eventually become the subsidize. >> that is your young contact in the system works overtime. i don't think it's a fair characterization of it. it does get that very problem. >> they are going to buy insurance later. the area underneath the money now. >> when they think they have a substantial risk of an curried high medical bills, they will buy insurance that the rest of us. i don't know why you think they're never going to buy it. >> that's the problem, justice scalia. that's the experience of the states have been made the imposition of guaranteed community rating model but ineffectual but highly good for example new jersey doubled tripled from 180,000 covering the market to 80,000 people covered in the. in kentucky every ensure that the market and the reason that some people have that guaranteed

that they can get insurance, though make the calculation that they won't get in until they're sick and need it. the pool of people in the insurance market gets smaller and smaller. the race to charge get higher and higher. it helps fewer and fewer people until the system ends. this is not a situation in which they insurance companies cover large numbers. >> you can solve it by not requiring the insurance company to sell a to someone who has a condition who require them to sell it at a rate that he sells it to healthy people. but you don't want to do that. >> that seems to me to say, justice scalia, that's the problem here. we cannot solve the problem through standard economic regulation. and i do not think that's the

premise. >> whatever problems it produces, whatever they are, i ain't congress can do something to counteract them here. requiring someone to enter -- the problem is you have people with affordable insurance through the means the rest of us get affordable insurance. congress after long study and careful deliberation and viewing experience at the states in the way they try to handle this problem adopted a package of reforms. guaranteed issue reading and minimum provisions solve that problem. i think it's highly artificial to view this as a problem of congress' own creation. >> is your argument limited to insurance by means of paying for health care?

>> why is that once you establish you have a market for health care? i was suppose it meant they had a broad scope in terms of how they regulate that market. it would be going back to loughner if we were put in the position of saying, no, you can use your commerce power to regulate insurance. but you can't use your commerce power to regulate a market in other ways. that would be a very significant intrusion by the court and to congress' power. i don't see how we can accept to its good for you in this case to say is just insurance. the ones who say there is a marketing congress can require people to participate in it as some would say. or as you say people already participate in it, seems to me we can't say there's some occasions where people can do, just like in any other area

given significant deference we accord to congress in this area, all bets are off and you can regulate the market in any rational way. >> but this is insurance as a method of payment for health care services. >> that's the area congress has chosen to regulate. everybody sentenced to be they can regulate it and look at a particular series of problems which is how people pay for. make year they can decide everyone look at a different problem now this is how we regulate it. we can't tell people to do things. purchase insurance in this case. something else in the next case because this is america ever chevron participates. >> i'd like to move to the tax power. >> connection tell you something else. everyone has to exercise because there is no doubt that lack of exercise causes illness and that

causes health care costs to cover. the federal government says everybody has to join an exercise club. that is the something else. >> no, the position would not justify that will, justice scalia because health club membership is not a means of payment for consumption of any in the market. >> that is exactly right, but it doesn't seem responsive to my concerns that there's a resemblance to say this is an congress' power, no reason under the arbitrary judgment to say all they can regulate is the method of payment. they can regulate other things that affect this now conceded interstate market in health care in everybody participates. >> is common ground in which is a market which chevron participates in congress can impose the requirement if the question and the proper

authority gives congress because of the features of this the insurance before you show up to get health care rather the moment. >> unless i'm missing some thing, i think you're just repeating the idea that this is regulation of the method of payment. i understand the arguments and he may be a good one. what i am concerned about his once we accept the principle that everybody's in this market, unless he was congress' powers limited to regulating payment and doesn't include in any other area. what other area has said congress can regulate, but only with respect to prices, but only with respect to means? once or in interstate commerce and can regulate it can pretty much all bets are off. >> we agree congress can regulate this market.

>> very significant ways already. the question is is there a limit to the authority we advocate the commerce power and the answer is yes we are not advocating for a power that would allow congress. >> before you move on, could you express is simply as you can peer congress for his people to purchase a product for the failure to purchase the product is a substantial effect on interstate commerce if what? at this as part of the larger regulatory scheme? >> we've got to under different. the mistake then. first with respect to the comprehensive scheme. when congress is regulating -- enacting the comprehensive scheme to enact, though cause gives it the authority to

include regulation, including regulation of this kind, if it is necessary to counteract risks attributable to the scheme itself that people engage in economic get tv that would undercut the scheme is very much like work i do not respect, with respect to that -- with respect to the commerce clause allowed not embedded in the scheme, our position is congress can regulate the method of payment by imposing an insurance requirements in advance of the kind in which the services consumed on the class to which the requirement applies there is or virtue is certain to be in that environment when the timing of ones and church of the market and what you need and that market is uncertain in when you look at the kerry and that

market whether you can afford to pay for it or not in the shift costs to other market participants. those are our views in the pencils we advocate for. the conjunction of the two of them here makes this a strong case on the commerce clause. >> could you turn to the tax cause? i have a case that involves the issue of whether something denominated by congress as a penalty was nevertheless treated as a tax, except in those situations but the code of where the statute itself treats the penalty if the tax. you know of any of any case where ..? >> i think i went to court to the tax case, where it was denominated to see him nontax in the it as an exercise of the taxing power in a situation which the structure was very much like the structure of this font in that there is a separate stand-alone provision that set

the predicate and provision imposing fees. >> license fees from the fees for a hunting license. everyone knows those are taxes. i mean, i don't think there's as much of the difference between a fee and attacks as between a penalty and a tax. >> in terms of the tax cut is useful to separate that into two questions. one is that characterization. can this be characterized as with respect to characterization, this is in the internal revenue code administered by the irs and paid on your form 1040 on april 15. >> you told me he listed a number of penalties that are enforced of the tax code that are not taxes and not penalties related to taxes. >> mep exercises at the taxing power, justice ginsburg, as this

is. there isn't a case in which the court has, to my mind suggested anything that they are safe then he can't be considered as an exercise at the tax and power. in fact, analyzing power points in the opposite direction and beyond that, seems to be the bravery to think about this question is whether it is capable of being understood as an exercise. >> justice scalia, the two things about that, first it seems to me what matters is what our congress was exercising. i think it is clear that they're exercising the tax power as well. >> number one it is a tax. number two it is within the taxing power. >> the president didn't thing. >> of us in a tax increase because it had to be understood to get people to have insurance.

i do think it's fair to infer anything about whether this is an exercise of the tax power or not. >> attacks is to raise revenue. tax is a revenue raising device on the purpose of this is to get people into the health care risk pool before they need medical care. and so, it will be successful if it doesn't raise any revenue they get people to devise the insurance. that is what this penalty is designed to affect conduct by a health protection, health insurance before you have any medical care. that is that penalty is designed to do, not to raise revenue. >> that is true, justice ginsburg. that is also true of the marijuana tax upheld in franchise. also churned penalties under the

code. if they raise revenue, they are exercises of the taxing power. the purpose is not to raise revenue. the purpose is to discourage behavior. when the mortgage deduction is clearly an exercise of the taxing power unsuccessful raises less revenue for the federal government an exercise of the taxing power. >> one question is whether determining congress not to refer to this as a tax. you suggest we should go to the polls and that seems right, except here we have a case in which congress determined this is an audit tax and the question is why should that be a relevant? >> i don't think that's a fair characterization of the actions congress here, justice k. game. on december 23rd point of order called in fact with respect to this love, before

sponsor, senator baucus defended as the taxing power and his response to the point of order the senate voted 62 met 39 on the proposition . it is replete with members of congress explaining this law is constitutional as an exercise as attack by his opponent. i don't get the situation where you can say congress was avoiding any mention worried explicitly disavowed the tax power. given that it hasn't done so, it seems to me not only is it fair to read this as an exercise of the tax power, but it's an obligation construed as the tax power that can be appalled on that. >> why didn't congress college attacks? >> the thought of it as the tax, defended it as a power. >> they might've thought calling

it a penalty would make it more effective in the commish and objectives. it is in the internal revenue code collected by the irs on april 15. i don't think there's a situation in which you can say -- >> they might have added they would be more effective. >> not deny no other than a fad. >> the problem goes back to the 19 problem. is there simply anything by the new -- >> i think the constitution imposes sun. got to be uniform. can't be attacks on exports. from drexel furniture to curse ranches that it can't be punishment, punitive and the guys at the tax. three factors identified to look at that. the first is the sanction and how as to the conduct.

the third is a very various administrative apparatus out there to enforce the tax. now in drexel furniture 10% of the profits, even if they had only one child labor for one day is this the cnc requirement enforced by the department of labor. was it just collected by the revenue service. here you don't have any of those things. the penalty is calculated to be no more than i must be equivalent of what one would've paid for insurance. no requirement, no enforcement apparatus out there. >> can demand it be reviewed as a tax if it does impose a requirement on people not subject to the penalty ordered the attacks? >> i think it could for the reasons i discussed yesterday. i don't think it can or should be read that way. if there's any doubt about that,